THE NATION.

Signs point to first-timers continuing to drive the market

PHILADELPHIA — It is no secret that first-time buyers keep the rest of the residential real estate market up and running. If it weren't for first-timers, for example, everyone else would not be able to trade up or down.

Fully 40 percent of people who buy existing houses in a calendar year are entering the market for the first time. This year, if sales projections are on the mark, that number will top out at 2.6 million homes.

Though there have been fears of a decline in the formation of new households needed to sustain growth, the market share of first-timers has remained at 40 percent since 1993.

And as far as the National Association of Realtors is concerned, there is no end in sight.

"The demographics of our country favor this trend going forward because Echo Boomers, the children of Baby Boomers, will be in the prime years for buying a first home in the next decade," association chief economist David Lereah said at the group's convention in Orlando earlier this month.

"These findings demonstrate a fundamental underlying demand that will be driving the housing market at a higher plateau for the foreseeable future," he said.

Lereah based his observations on 8,205 responses to a survey of 100,000 home buyers obtained from county records by Experian, a credit-services company. The survey was of people who bought houses between August 2003 and July 2004; information on sellers came from buyers who also sold a house.

The typical first-time buyer was 32 years old, with one in 10 under 25 and more than half between 25 and 34, the survey data showed. Median income was $54,500, while three-quarters of the respondents said they made less than $75,000 a year.

Seventy-seven percent of first-time buyers responding to the survey were white. However, 24 percent of the total identified themselves as African-American, Latino and Asian. They also were somewhat more likely to speak a language other than English than repeat buyers.

Whether first-time or repeat buyers, the vast majority are buying primary residences rather than second or vacation homes. Most are buying houses rather than townhouses or condominiums. And while interest in cities is increasing among young singles and empty-nesters, the highest percentage of buyers is buying in the suburbs.

Although the Realtors survey purports that fewer people are trying to sell their houses than in the past -- just 14 percent, or 1,148 of the 8,205 responding -- the anecdotal evidence is suggesting otherwise.

"I just think a lot of people who weren't successful don't like to talk about it," said Noelle Barbone, manager of the Weichert Realtors office in the Philadelphia suburb of Paoli, Pa.

Chris Artur, of Artur Real Estate in Mayfair, disagreed with survey findings that the number of for-sale-by-owners has increased, but only because he has not seen a lot of FSBO lawn signs.

"The inventory is so low, and homes are selling so quickly that for-sale signs don't stay up that long anyway," he said.

The survey shows that while half of those who were successful FSBOs would do it again, 34 percent are not sure. The association also maintains that the median price of those 1,148 FSBO houses was 15.4 percent lower than prices for comparable homes sold with the aid of an agent.

"It's not as easy as it looks," Lereah said.

One of the reasons people try selling their own homes is to avoid paying a real estate agent's commission, which has long been 6 percent in the Philadelphia area.

Yet Lereah said there had been "downward pressure on commissions, led by Re/Max, Realty Executives and other franchises, to make them extremely competitive."

Commissions are negotiable by law. But until the inventory of houses for sale became tight, it was rare that agents would agree to reduce it.

Also helping to reduce commissions is the "fee for service," in which sellers are offered a laundry list of agent services at specific prices.

"That is true in this market and many others," Barbone said. "It depends on how fast the seller wants the house sold and how much he or she wants to motivate the agent to get it done."

The survey found that Internet use by consumers, while growing, has not driven real estate agents into obsolescence -- something that had been predicted almost a decade ago.

There are, in fact, more Realtors than ever -- about 1.25 million today compared with 644,000 in the mid-1990s.

Although only 7 percent of buyers said they found their agents on the Internet, 74 percent said they searched for houses there. This compares with 2 percent of buyers surveyed in 1995.

"It is hard to imagine having Internet access and not taking advantage of such tools when searching for a home or in educating yourself about the housing market," Lereah said.

As tends to be the case with open houses, it is rare that Internet users buy the home they find in their searches, said Mike McCann of Prudential Fox & Roach in Center City."A lot of people who use the Internet are not serious buyers," he said. "We do get sales and leads from it, and the nice thing is that the motivated buyer has used the Internet to narrow the focus of the search, so we end up having to show fewer properties to make the sale."